- CFA Exams
- CFA Level I Exam
- Study Session 1. Ethical and Professional Standards
- Reading 3. Guidance for Standards I-VII
- Subject 5. Standard II (A) Material Nonpublic Information
CFA Practice Question
You have a friend who works as a legal adviser to a firm which is about to be acquired at a significant premium to the current market price. He informs you of the upcoming acquisition and suggests that you purchase a significant number of shares. He says that while he is an insider, you can trade on the information because you are not.
A. You cannot trade on the information because it is material and non-public.
B. You can trade on the information because you are not an insider.
C. You cannot trade on the information because your friend has breached fiduciary duty.
User Contributed Comments 6
| User | Comment |
|---|---|
| wollogo | What exactly does 'fiduciary duty' mean? |
| ggekko | the friend works "as a legal advisor" and therefore has a fiduciary duty to his client |
| letg | why should I care about C? fiduciary duty is friend's problem! |
| pierreE14 | I understand letg's view, the point is that you cannot trade on misappropried information |
| ThePessimist | I agree C is kind of stupid - it wouldn't make any difference if your friend was the building garbageman (with no fiduciary duty) who saw the draft press release in the trash. |
| Lamkerst | fiduciary duty is to do the best deal for your clients |